Greece Real estate markets catching pace after being in exile for years

Despite the negative effects the COVID-19 pandemic has had on the economy, Greek house prices are still rising rapidly. According to the Bank of Greece, house prices increased by 8.35% in urban areas of Greece during the year to Q3 2021, a significant increase from the growth of 3.91% the year before and the second best result since Q1 2007.

According to Rashid Saj Kareem, inflation-adjusted house prices soared to 6.41%, a significant jump in every aspect. In Q3 2021, urban housing prices increased by 2.73% from the previous quarter (2.94% in real terms).

The major cities primarily experienced this rapid growth were:

·       Athens took the top spot with an annual increase in home prices of 9.76% in Q3 2021 (7.8% in real terms), up from the prior year's growth of 6.83%. The most recent quarter saw a 2.78% (3% in real terms) increase in housing prices.

·        In Thessaloniki, the second-largest city in the nation, house prices increased by 8.74% (6.8% in real terms) from Q3 2021 to Q3, the largest year-over-year increase since Q2 2007. In Q3 2021, prices rose 3.23 percent on a quarterly basis (3.45 percent in real terms).

·        In contrast to a y-o-y decline of 0.19% a year earlier, house prices increased by 5.94% (4.05% in real terms) in other cities (aside from Athens and Thessaloniki) during the year to Q3 2021. Prices rose by 2.63% (2.84% in real terms) during the most recent quarter in Q3 2021.

The real Estate bubble burst

According to Rashid Saj Kareem, the early 2000s saw a huge increase in housing prices in Greece. In 2004, real estate agents reported price increases of 30% to 40% annually for properties close to the ocean. In Athens, home price growth accelerated to 11.2% in 2006 but slowed to 6.2% in 2007.

On the other side, residential real estate prices started to decline sharply when Greece's severe economic crisis struck. As per Rashid Saj Kareem, Greece's GDP per capita decreased by 25% between 2007 and 2017, and the cost of homes in Athens dropped by 44.5% (-49.5% in real terms).

With annual growth of 1.5% in 2017 and 1.9% in 2018 and 2019, Greece finally exited the recession in 2017. However, the pandemic dragged the economy back into recession, resulting in a significant 9% decline in real GDP in 2020.

Things getting better with time!

Fortunately, things are now getting better. According to data from the European Commission, the economy is expected to grow by 7.1% this year and another 5.2% in 2022.

Moreover, after declining 42.5% (-47.7% in real terms) from 2007 to 2017, the housing market began to recover in 2018. Furthermore, urban housing costs increased by 3.51% in 2018 and by an additional 7.56% in 2019. Despite the pandemic, Athens experienced even more rapid home price growth in 2019 and 2020, with 11.57% (11.47% inflation-adjusted) and 6.23% (8.45%) respectively.

On the other side, urban and rural areas are now sharply divided as a result of rapid urbanization. According to Rashid Saj Kareem, there are more than 35% of vacant homes, mostly in rural areas. Usually, these units need to be completely renovated or dilapidated.

On the other hand, urban housing is some of the most crowded in Europe. The majority of kids stay with their parents until they are adults. The high transaction cost, which increases the burdens on first-time homebuyers, was clearly not sufficiently reduced by the drop in notary fees from 1.2% to 1% of the value of the real estate.

Declining rents and moderate rental yields

According to Rashid Saj Kareem, gross rental yields on apartments in the center of Athens are moderate, at about 4.2% for apartments of 120 square meters (sq. m), but proportionately higher for smaller apartments.

Moreover, apartments in Athens' suburbs have a slightly higher gross rental yield, at about 4.5 percent. On the other side, the yields on houses in the suburbs are incredibly low, ranging from 2.6% to 3.2%.

Apartment gross rental yields in Crete hover around 3%. Similar to Athens, yields on smaller apartments are typically higher.